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'Will the Nano change India's auto industry?'

March 25, 2009

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It signals a major jump in the global acceptance of India as a hub for small cars, but maintaining this will require a lot more including, for starters, large production volumes.

Jagdish Khattar, chairman and managing director, Carnation Auto

'India has emerged as an attractive hub for making compact cars -- the Nano means the world will now accept India's expertise in design values and frugal engineering'

The Nano promises to provide a safe and environment-friendly mode of transport to a large segment of the population who, till now, did not have that option. This will give a major fillip to the Indian automobile industry.

Despite liberalisation during the last decade, the penetration of automobiles in India has just reached about seven per thousand people, compared to double digits in even Sri Lanka and Pakistan.

It was in early 1980s, when the Maruti 800 was launched, that we saw the first major 'people's car,' giving customers an alternative to choose from apart from the Ambassador and Padmini. That car not only exceeded its objective but also brought about a major change in the manufacturing sector as a whole.

With the launch of the Nano, we will experience many new important facets. It is now well-accepted that India has emerged as an attractive hub for the manufacturing of compact cars. But, with the launch of the Nano, the world will also accept India's competence in design values and frugal engineering.

The world will also accept the capabilities of the component manufacturers who have developed the parts at low prices. India could now start supplying to the automobile plants of the major international car manufacturers abroad.

So what does Nano mean to the economy at large?

~ Employment opportunities to millions in this era of recession not only in manufacturing but in sales, service, finance, insurance etc.

~ A boost to the rural economy because this car, along with improved roads, will help increase mobility.

~ Empowerment and liberation of women in smaller towns.

~ In India over 300,000 auto rickshaws are sold in a year for about the same price as the Nano. The Nano is a substitute for public transport which is safer, far more environment-friendly and convenient.

Some argue that the introduction of the Nano may further congest cities further. While this possibility can't be ignored, one should not favour restricting its sales. The central and state governments are trying their best to improve the road network and connectivity. What is also required is an efficient and cost-effective option in public transport.

As the Nano customer-profile includes current two-wheeler owners, the state agencies should take proactive actions to ensure that they are trained on issues pertaining to proper driving skills and road safety.

The management of Tata Motors [Get Quote], I am sure, would have worked out their strategies to meet the challenges of sales and after-sales. The first is to meet the high demand that is likely to get created. As there would be many first-time customers, the sales force will have to advise them on issues like running and maintenance of the car. A service network with a much bigger spread would also be needed.

Since two-wheeler owners are used to getting 60-70 km per litre, as compared to the Nano's 20+, the cost of ownership of a Nano is likely to be far higher than that of a two-wheeler -- two-wheelers also have many neighbourhood workshops. The proposed rural marketing will also require a network that is as near the customer as possible.

Rakesh Batra, partner, Ernst & Young

'This is a big achievement but the auto market has been changing over the years anyway. To sustain this requires production volumes, great after-sales and product-acceptance'

In a sense, Tata Motors has already changed the face of the Indian automobile industry by developing a product that no manufacturer has so far been able to do across the world. This is an achievement of Indian innovation at its best across design, engineering, manufacturing and the supply base.

Time magazine has listed the Nano in the dozen most important cars in the world since 1908. The Indian automobile industry has clearly established its place as the ultra-low cost car centre globally and the Nano is likely to spur greater activity in the years to come. Truly, an innovation of this enormity should get the success it deserves.

That said, the face of the Indian automobile market has been changing over the years and will change once again after the Nano. We will have a whole new set of customers, both in urban and rural areas, for whom a car will symbolise a dream that can be realised.

Car ownership is considered to be a symbol of economic progress and is therefore very high on a consumer's aspirational list of products. Given the sizeable Indian population and the low cost of owning and using the Nano, the car is likely to attract a large cross-section of potential customers, many of them first-time car-owners.

As the market expands further, prices of small used cars will fall, a trend we are already witnessing with declines of around 35 per cent, making affordability still higher.

The Nano could also have an impact on vehicles used for passenger transportation, particularly three-wheelers which, in some cases, cost more than the Nano. The latter presents a viable alternative with greater driver and passenger comfort, and protection from the vagaries of the weather.

The Tata Ace, which was launched in 2005, managed to change the dynamics of the three-wheeler transportation market.

Vehicle distribution, sales and service may also see changes in the post-Nano world. Keeping in line with its ultra-low-cost positioning, there will be a need to keep marketing and distribution costs significantly lower.

Tata Motors has already begun using internet marketing through social networking websites and is potentially considering online sales. One day, in the not very distant future, you may be able to order the car online and track the progress of your order through manufacturing and delivery to a local dealer or retailer.

While these are some of the changes which will impact the Indian auto market, they will certainly not happen overnight. Beyond the initial buzz and the excitement around the launch, it will take some time for sufficient volumes to be produced and sold -- this could take anywhere up to around 2-3 years.

Further, the Indian consumer is very discerning and the product and after-sales service quality will need to live up to the consumers' expectations for the Nano to be successful.



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